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Editor’s Note: With the economic situation going from bad to worse, Harry Rinker offers antiques and collectibles dealers some sound advice on how to successfully use layaways.

The News-Times of Danbury, Conn., ran a feature story this month titled “Layaway may make a comeback.” Representatives for big-box stores and local merchants were interviewed to determine who is using layaway. Kmart is. Wal-Mart and Target are not. Some T.J. Maxx and Marshall stores do. Use among local merchants also was mixed. Many local merchants who offer layaway do not advertise the practice, reserving it for their regular (loyal) customers.

As the economy tightens, more and more individuals are using cash rather than credit cards. While the housing market bears the brunt of the blame for the current worldwide economic crisis, overextended personal credit cards and large home-equity loans also fuel the fire. Credit-card interest rates and other charges, some obvious and others less so, compound individual debt, especially for those who only pay the monthly minimum.

Merchants prefer MasterCard and Visa because moneys appear in the merchants’ accounts immediately after a charge is reported. Both companies absorb bad debts incurred when individuals refuse to pay without penalizing the merchant. Will the current economic crisis change this? Yes is a possible answer.

eBay institutes 20-day float

eBay’s PayPal is a case in point. eBay announced a 20-day delay in crediting payments to a PayPal merchant’s account, defending its decision under the guise that most transaction complaints occur within this period. eBay receives a 20-day float using other people’s money and can refund a buyer’s money without any loss to itself if it honors a complaint. Besides not being paid for the object shipped, the antiques-and-collectibles dealer also is faced with the costs involved in recovering the shipped object.

Given the above, it should come as no surprise that layaway with its direct contract between seller and buyer is making a comeback. Layaway is viewed as a key to keeping old customers and attracting new ones.

Layaway a long part of selling antiques and collectibles

Layaway has played an integral role in the antiques-and-collectibles business since its inception more than a century ago. While most sellers do not advertise its availability, it is deeply entrenched, more than most realize.

Until the current economic crisis, many auction houses allowed dealers in the trade to take between 60 and 90 days to pay for purchases. This provided dealers an opportunity to sell their newly acquired inventory before payment was due. Auction houses partially covered their risk by not paying consignors until 45 business days following the sale. Competition in the 1990s shortened the payment period to 30 days, forcing auction houses to establish lines of credit to cover the period between payout and payment.

Internet sales affect auction-house payouts

As Internet sales grew, many auction houses returned to the 45-day payout, arguing that collecting payment from non-house buyers, packing and shipping merchandise, and receiving a final OK from the purchaser added weeks, if not months, to the selling process. Consignors resisted, and many auction houses reverted back to the 30-day payout. Recently, several auction houses, Sotheby’s among them, announced that dealers would no longer be allowed to pick up items bought at auction until the auction house received payment in full. Auction-house layaway became a victim of the current economic crisis.

How does layaway work?

Layaway works as follows. A buyer agrees to purchase an item from a seller at an agreed-upon price. The buyer makes a down payment on the object. The buyer and seller agree on a payment plan to liquidate the balance. Local merchants usually offer 30 days and occasionally will agree to 60 days if pushed. Three months-plus is more typical in the antiques-and-collectibles field.

The seller retains the merchandise until the final amount is paid in most layaway transactions. This is less true in the antiques-and-collectibles trade. Most dealers allow regular customers to take layaway merchandise home, a practice fraught with danger and which often leads to disastrous consequences.

Even at the local-merchant level, layaway almost always is a verbal contract, a handshake deal. There is no formal contract that states terms and conditions. As a result, disputes quickly evolve into a “you said–I said” argument.

Beware shipboard art-and-antiques auctions

Shipboard art auctions, one of the biggest, if not the biggest, ripoffs in fine arts and antiques (decorative arts), have layaway contracts available. Most shipboard art is purchased in this fashion. Individuals are either too drunk or too euphoric to properly read what they are signing. Most contracts contain a provision that if a person fails to make a scheduled payment, not only does the seller have the right to recover the art, but all moneys paid to date are forfeited.

The hook is set deep. Individuals who buy shipboard art and antiques eventually seek an outside appraisal, assuming they will be told their purchases have appreciated. Alas, the usual appraisal is that they should consider themselves lucky if they are able to sell for a nickel on the dollar.

Those who seek an appraisal while still making payments are caught on the horns of a dilemma. They have a substantial sum invested in the art. A false reasoning process occurs. They conclude the only way to protect what they already have in their purchase is to pay off the balance.

No one likes to admit that someone has made a fool of him, another reason why the snookered continue to pay. The only sensible approach is to stop paying and limit the loss. Most ship-purchased fine art and antiques wind up in closets or other out-of-sight storage areas, places where the buyers is not constantly reminded that he was had.

Layaway tips

Consider these points if you are an antiques-and-collectibles seller who now offers or is planning to offer layaway as a purchase option:

1. Prepare a formal document (contract) that contains blank space for key information such as the down payment and payment schedule.

2. Do not allow the customer, no matter how well you think you know him, to take the merchandise until full payment is in hand.

3. Require a minimum down payment of between 20 and 25 percent. One-hundred-percent home financing was one of the major contributors to the current economic crisis.

4. Create a payment schedule linked to a monthly charge to a valid credit card. Beware of allowing payment by check. If your customer falls on hard times, he is going to pay necessities first and luxuries second.

5. Establish a per-month interest penalty if the amount is not satisfied in the specified time. Layaway buyers assume the seller will not charge interest. You are extending the buyer credit, essentially making a loan. Banks and other financial institutions that make loans charge interest. Consider this.

6. Have a clear policy of what happens if a customer fails to fulfill his layaway obligations. While you retained the merchandise, you withheld it from the market. You also paid to store and insure it. You have every right to expect compensation for these services. Some layaway sellers require the forfeiting of the down payment. Others keep all moneys paid to date. Then there are those who return all moneys claiming the good will created far outweighs the financial damage. I think they are crazy.

Are you an antiques-and-collectibles seller (dealer) who uses layaway? What have your experiences, positive or negative, been? E-mail your comments and thoughts to harrylrinker@aol.com.

Rinker Enterprises and Harry L. Rinker are on the Internet. Check out his Web site.

You can listen and participate in “WHATCHA GOT?,” Harry’s antiques-and-collectibles radio call-in show on Sunday mornings between 8 a.m. and 10 a.m. Eastern Time. If you cannot find it on a station in your area, WHATCHA GOT?” streams live and is archived on the Internet.

“SELL, KEEP OR TOSS? HOW TO DOWNSIZE A HOME, SETTLE AN ESTATE, AND APPRAISE PERSONAL PROPERTY” (House of Collectibles, an imprint of the Random House Information Group), Harry’s latest book, is available at your favorite bookstore and via Harry’s Web Site.